Ireland Media Replication Joint Venture and Strategic Relationship
Announced MINNEAPOLIS, MN, May 9, 2006 /PRNewswire-FirstCall/ --
Zomax Incorporated (NASDAQ:ZOMX) today reported the operational
progress and financial results for its first quarter ended March
31, 2006. Operational Highlights -- The Company achieved
year-over-year improvement in several first quarter operating
metrics: -- Reduced operating loss by 28% prior to restructuring,
adjustments to the litigation reserve and SFAS 123R stock option
expenses. -- Reduced SG&A expenses by 15% prior to SFAS 123R
stock option expenses. -- Reduced fixed manufacturing expenses by
29%. -- Improved performance of Ireland subsidiary from an
operating loss of $1.7 million before restructuring charges in the
first quarter of 2005 to operating income of $0.3 million in the
first quarter of 2006. -- Ended the quarter with $43 million in
cash and no debt. -- Added 3 new customers from the software,
gaming and telecommunications industries and continued to engage
existing customers in new services and programs. -- Announced
agreement to form media replication joint venture in Ireland with
MPO International, which should allow expansion of service offering
across Europe. Revenues in the first quarter were $36.2 million,
compared with $42.2 million reported for the first quarter of 2005.
Operating loss, inclusive of $0.9 million of restructuring costs
associated with the March closure of the Company's Fremont facility
and $0.4 million of non-cash stock option expenses as required by
the new accounting standard SFAS 123R, was $7.3 million or $6.1
million excluding the aforementioned costs. Net loss was $6.9
million or $0.21 per share, inclusive of restructuring costs of
$0.03 per share and stock option expenses of $0.01 per share. In
the first quarter of 2005, operating loss was $8.4 million
excluding restructuring charges of $0.2 million and excluding a
$1.8 million benefit from the revaluation of the stock component of
the litigation reserve. "First quarter revenues were in line with
our guidance for the quarter, and reflected the continuing
reduction of content and other program changes in the PC/OEM
space," said Anthony Angelini, president and CEO. "Our operating
loss of $6.1 million before restructuring charges and non-cash
stock option expenses is a 28% improvement compared with the first
quarter of 2005, adjusted for restructuring charges and changes to
our litigation reserve, and is based on a lower revenue level.
During the quarter we completed the closure of our Fremont facility
on time and on budget, another positive milestone. Cost reductions
from this action will benefit our results beginning in the second
quarter. In addition, our balance sheet with $43 million in cash
and no debt remains very strong." Ireland Joint Venture With MPO
Announced In a separate release today, Zomax announced an agreement
to enter into a joint venture with MPO International to consolidate
their respective media manufacturing and production businesses in
Ireland. The companies also intend to sign a sales and marketing
agreement to address additional growth opportunities in Europe.
Zomax will own a 51% share of this joint venture and MPO will hold
49%. Closure of this agreement is subject to final negotiation and
execution of ancillary agreements, completion of customary due
diligence and consents and is expected to occur within
approximately 45 days. "We are very excited by the opportunities
presented by our Irish joint venture," continued Mr. Angelini.
"Beyond the immediate and significant synergies to be realized by
combining our facilities, management teams and operational
infrastructure, I believe we have the ability to leverage our
individual strengths and customer relationships to mutually benefit
both of our businesses in Ireland, greater Europe and other parts
of the world. Our initial focus will be to quickly consolidate our
operations in Ireland and create new business opportunities
leveraging capabilities of both companies. Our well performing
contact center in Santry will continue to be fully owned by Zomax.
We will however, look for opportunities through our joint venture
with MPO to further leverage this valuable asset." "Our intent is
to consolidate our respective media replication operations into
MPO's existing production facility in the greater Dublin area,"
added Dick Barnes, executive vice president and CFO. "As a result
of this, we will be exercising a lease exit right in our Clondalkin
production facility. We expect that this will result in a cash
restructuring charge of approximately $1.8 million for lease exit
costs and facility transition costs to be incurred over the balance
of 2006, of which we expect approximately $1.3 million will be
recorded upon closing of the transaction. Rapid integration of our
two manufacturing facilities and management teams should result in
a payback of this cash outlay in less than eighteen months. Our
expectations are that the joint venture will be cash and earnings
positive in 2007." Outlook For the second quarter of 2006, revenue
is expected to be in the low to mid $30 million range, reflecting
the continued reduction in content in the PC/OEM space. Operating
loss is expected to be $6.8 to $7.8 million inclusive of expected
restructuring charges of approximately $1.3 million for the Ireland
joint venture and $0.4 million for non-cash stock option expenses
per SFAS 123R. Operating loss before these items is expected to be
$5.1 to $6.1 million. This compares with an operating loss of $6.4
million on $42.6 million in revenue in the second quarter of 2005
excluding restructuring charges of $2.1 million and a $0.4 million
benefit from the revaluation of the stock component of the
litigation reserve. Net loss per share in the second quarter of
2006 is expected to be between $0.20 and $0.23 including the
aforementioned restructuring charges and non-cash stock option
expenses, or between $0.15 and $0.18 excluding these charges. In
the second quarter of 2005 the Company recorded a loss of $0.17 per
share, or $0.13 excluding restructuring charges and the litigation
reserve benefit. Consistent with the establishment of a deferred
tax valuation allowance in the third quarter of 2005, losses in
2006 are no longer tax benefited in the U.S. and Ireland.
Conference Call Zomax will host a conference call and webcast,
today, May 9, 2006 beginning at 4:30 p.m. Central Time, to discuss
the Company's first quarter 2006 results, outlook for the second
quarter of 2006 and current corporate developments. To participate
in this conference call, please dial 800-218-8862 for domestic
callers or 303-262-2140 for international callers. A replay of the
conference call will be available for seven days by calling
800-405-2236 for domestic callers or 303-590-3000 for international
callers, both using passcode 11059500#. The conference call will
also be available by webcast. Participants may log on to the
webcast conference call by pre-registering at http://www.zomax.com/
and clicking on the webcast link. About Zomax Zomax helps companies
more efficiently bring their products and content to market
worldwide. Our comprehensive program management approach helps
companies develop, manage and improve their rapidly changing
product and program supply chains. Zomax's solutions leverage a
modular suite of supply chain services that include project
management, data management, customer contact and e-commerce
services, sourcing management, CD/DVD production, assembly and
kitting services, JIT physical and electronic fulfillment and
returns management. Founded in 1993, Zomax currently operates 8
facilities across the United States, Canada, Mexico and Ireland.
For more information on Zomax, visit http://www.zomax.com/ or call
(866) 553-9393. Use of Non-GAAP Financial Measures The Company
believes the presentation of operating and net loss information
excluding restructuring and special charges are useful information
regarding the underlying business trends and performance of the
Company's ongoing operations and that period over period
comparisons of such operations are meaningful. Investors should
consider these non-GAAP measures in addition to, and not as a
substitute for, financial performance measures prepared in
accordance with GAAP. In addition, these non-GAAP financial
measures may not be the same as similar measures presented by other
companies. Forward-Looking Statements Certain statements contained
in this press release are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements relate to our expectations of
future performance and events including the anticipated financial
impact of the Fremont facility closure; our expectations as to the
closing, financial impact and implementation of the Ireland joint
venture; our anticipated efforts to reduce reliance on the PC/OEM
space; our strategy to return to profitability; revenue growth and
margin improvement efforts; our transition into a supply chain
program management company and its impact on operations; the
expected results of operations for the second quarter of 2006; and
the focus in 2006 on rationalizing our cost base and asset
infrastructure and investing in sales and marketing efforts. These
forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results,
performance or achievements to be materially different from the
results, performance or achievements expressed or implied by the
forward-looking statements. We caution that any forward-looking
statements made by us in this release or in other announcements
made by us are qualified by important factors that could cause
actual results to differ materially from those in the
forward-looking statements. These factors include, without
limitation, the changes and volatility in the personal computer
hardware and software industry, particularly with respect to the
demand for CD and DVD media, from which a significant portion of
our revenues are derived; macroeconomic factors that influence the
demand for personal computer hardware and software and the
resulting demand for our services; consolidation among our
customers or competitors, which could cause disruption in our
customer relationships or displacement of us as a services provider
to one or more customers; our ability to make the proper strategic
choices with respect to pursuing profitable growth in our business;
our ability to successfully evolve the business toward becoming a
supply chain program management company, particularly in light of
the changes needed in our infrastructure, personnel, asset base and
customer relationships; increased competition within our industry
and increased pricing pressure from our customers; our dependence
on relatively few customers for a majority of our revenues;
fluctuations in our operating results from quarter-to-quarter,
which are influenced by many factors outside of our control,
including variations in the demand for particular services we offer
or the content included in the products we produce for our
customers; the volatility of polycarbonate prices; the closing of
the Ireland joint venture as anticipated, which is subject to
several significant contingencies; our ability to execute on the
plans related to the Ireland joint venture; and other risks and
uncertainties, including those identified and discussed in detail
under the caption "Risks and Uncertainties" in Item 1A of our 2005
Form 10-K. We undertake no obligation to update or revise any
forward-looking statements we make in this release due to new
information or future events. Investors are advised to consult any
further disclosures we make on this subject in our filings with the
Securities and Exchange Commission, especially on Forms 10-K, 10-Q
and 8-K, in which we discuss in more detail various important
factors that could cause actual results to differ from expected or
historical results. ZOMAX INCORPORATED Condensed Consolidated
Statements of Operations (Unaudited) (Amounts in thousands, except
per share data) Three Months Ended March 31, 2006 April 1, 2005
Revenue $36,226 $42,181 Cost of revenue 33,549 40,385 Gross profit
2,677 1,796 Selling, general and administrative expenses 9,118
10,227 Restructuring Costs 874 230 Litigation reserve adjustment -
(1,830) Operating (loss) income (7,315) (6,831) Other income, net
585 350 Earnings (loss) before income taxes (6,730) (6,481) Income
tax (benefit) expense 191 (2,333) Net earnings (loss) $(6,921)
$(4,148) Earnings (loss) per share: Basic $(0.21) $(0.13) Diluted
$(0.21) $(0.13) Weighted average common shares outstanding:
Weighted average common shares outstanding 32,529 32,716 Dilutive
effect of stock options - - Weighted average common and diluted
shares outstanding 32,529 32,716 ZOMAX INCORPORATED Condensed
Consolidated Balance Sheets (Unaudited) (Amounts in thousands)
March 31, December 31, 2006 2005 ASSETS: Current Assets: Cash and
cash equivalents $42,910 $45,250 Available-for-sale securities - -
Accounts receivable, net 21,148 26,823 Inventories, net 11,192
13,978 Other current assets 2,517 2,409 Total current assets 77,767
88,460 Property and equipment held for use, net 23,004 24,504
Available-for-sale securities 2,413 2,091 Deferred income taxes - -
Other Long-Term Assets 117 117 $103,301 $115,172 LIABILITIES AND
SHAREHOLDERS' EQUITY: Current liabilities: Accounts payable 8,838
14,709 Accrued expenses 11,356 11,538 Total current liabilities
20,194 26,247 Other long term liabilities 355 317 Total liabilities
20,549 26,564 Shareholders' equity: Common stock 62,744 62,163
Retained earnings 13,793 20,715 Accumulated other comprehensive
income 6,215 5,730 Total shareholders' equity 82,752 88,608
$103,301 $115,172 DATASOURCE: Zomax Incorporated CONTACT: Anthony
Angelini, President and CEO, or Dick Barnes, EVP and CFO, both of
Zomax Incorporated, +1-763-553-9300; or Investor-Media, Douglas
Sherk, CEO, or Jennifer Beugelmans, Senior Vice President,
+1-415-896-6820, or Media, Steve DiMattia, Senior VP,
+1-646-277-8706, all of EVC Group, Inc. Web site:
http://www.zomax.com/
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